Suspension and Debarment

With every new administration, there is both great uncertainty and opportunity in federal government contracting. To help you navigate the rough seas of doing business with the federal government in this new administration, we have assembled nationally recognized practitioners who will cover topics relevant to government contractors large and small, novice and seasoned. Session topics

Last month, we wrote about the House passing a resolution (H.J. Res. 37) pursuant to the Congressional Review Act to repeal the Fair Pay and Safe Workplaces rule (commonly known as the contractor “Blacklisting” rule). At the time we predicted the resolution would also pass the Senate and be signed by President Trump. On March 6, 2017, the Senate passed the joint resolution, and joint resolution was signed by President Trump yesterday, permanently nullifying the Blacklisting rule before it ever took effect.
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logo-titleBack in October 2016, we wrote about the Fair Pay and Safe Workplaces rule (commonly known as the contractor “Blacklisting” rule) and how its implementation had been temporarily halted by a federal court in Texas.  The Blacklisting rule would have allowed agencies to essentially debar contractors on a contract-by-contract basis if a contractor had a labor law violation on its record.  Many in the contracting community lobbied hard against this rule, arguing (among other things) that the Blacklisting rule would put contractors at risk of inconsistent disqualification from procurements without the same due process rights that go along with agency suspension and debarment programs.  Well, it now looks like Congress has decided to step in and flex a rarely used law to get rid of the Blacklisting rule for good.

Today, by a vote of 236-187, the House of Representatives passed a disapproval resolution pursuant to the Congressional Review Act to repeal the Blacklisting rule.  
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Last week we discussed the FY2014 Interagency Suspension and Debarment Committee Report released in April, and discussed how the data in that report is compiled. This week we are breaking down the numbers in the report.  FY 2014 saw an increase in overall numbers of suspensions, proposed debarments, and debarments. There was 5,179 total actions in FY 2014, up from 4,842 in FY 2013, an increase of approximately 7%. Primarily there was an increase in actions from civilian agencies, which indicates that civilian agencies are starting to build more active programs. More active programs means that the trend of increased activity should continue. The civilian agencies with the largest jump in actions were: Departments of Housing and Urban Development (24%) and Treasury (90%). Additionally, in the Department of Defense, the Navy also had a 29% increase in actions. Based on this report, it seems likely that the Department of Defense will continue at the same level and we will continue to see moderate increases in the civilian agencies.
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It’s the time of year again to obsess over numbers that are mostly irrelevant. On April 1, the Interagency Suspension and Debarment Committee released its FY2014 report releasing the number of exclusion actions government-wide that agencies initiated. These numbers include suspensions, proposed debarments, and debarments as well as administrative agreements. It’s important to understand how these numbers are compiled before discussing the numbers themselves.

First, if, for example, Suzy Smith and Bobby Smith own Smith Contractors and all three are proposed for debarment for the same misconduct, those are counted as three actions within the ISDC report’s numbers despite only one act of misconduct. The ISDC itself admits that it “does not consider the overall number of suspension and debarments to be a metric of success.” Because most of the actions behind these numbers are unpublished, it is impossible to tell how many actual instances of misconduct the SDOs reviewed this year. Why do we care about instances of misconduct compared with overall numbers? If one debarment covers fifty individuals in a single case, that single case counts as fifty actions, and it looks like there is far more activity in that agency over the year than there actually is.
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In the previous post, the World Bank’s system for debarment was discussed.  This post discusses the collateral impacts of a World Bank debarment in the context of the World Bank’s debarment of Alstom SA.

What did the World Bank debarment of Alstom mean in the broader context of international procurement?  Are there potential collateral consequences

On February 25, 2015, the World Bank lifted its debarment of Alstom SA.  The company had been debarred after it was discovered it had made improper payments for consultant services to an entity controlled by a former senior government official on a World Bank-finance project in Zambia in 2002.  The terms of the debarment required Alstom subsidiaries, Alstom Hydro France and Alstom Network Schweiz AG, to pay $9.5 million in restitution and prohibited these entities from bidding on World Bank contracts for up to three years.  If these subsidiaries complied with the terms of the agreement with the World Bank, they would be eligible to compete for contracts again in 21 months.  24 months later, following Alstom’s fulfillment of the terms of the agreement, the World Bank lifted its debarment.

While the World Bank does not have the long history of a developed suspension and debarment regime similar to that of the United States, the World Bank has been progressively more aggressive in this area.  Part I of this blog post discusses the World Bank’s system for suspensions and debarments.  Part II discusses the collateral consequences of a World Bank debarment.

What is the World Bank’s debarment process?

In many ways, the World Bank’s debarment process is similar to the United States’ system.  There are three structural levels to the World Bank’s system: the Integrity Vice President (“INT”), the Evaluation Officer, and the Sanctions Board.  The Integrity Vice President refers matters to the Evaluation Officer.  The Evaluation Officer makes a determination regarding the adequacy of the matter for a sanction under the World Bank’s rules.  The Sanctions Board reviews the case if a contractor decides to appeal the Evaluation Officer’s determination.
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This month I wanted share an article I recently found on the OECD Foreign Bribery Report, written by Richard Bistrong.  Mr. Bistrong is a former international sales executive who himself was convicted of bribery and debarred, and Mr. Bistrong spent 14 ½  months in prison.  Prior to his conviction, Mr. Bistrong acted as a government witness and participated in covert cooperation to uncover Foreign Corrupt Practices Act and other export violations.

Of the 427 cases used by the OECD (Organisation for Economic Co-operation and Development) as a data set, only two cases resulted in debarment, one of which was Mr. Bistrong.  From Mr. Bistrong’s perspective, a debarred person, debarment is both a fair and appropriate measure.  As such he questions why it is not used more frequently.  Mr. Bistrong cites to Professor Brandon Garrett of the University of Virginia, who argues prosecutors and regulators want to avoid debarring companies as they are effectively death penalties for the company.  Mr. Bistrong argues more of these cases should end in debarment as it is a valuable tool for governments.  The OECD report itself encourages countries to debar entities and individuals that have bribed foreign public officials.

So why does it appear this tool has been used so infrequently?  There are several potential reasons.  First, prosecution for foreign bribery and debarment itself has experienced a resurgence of popularity in the last decade.  The OECD report demonstrates a spike in foreign bribery between 2007 and 2013 with a peak in 2011.  Debarment in the United States has existed in some form since the Civil War, but the current form was established in the late 1980s.  Other countries have recently developed models for a debarment regime or updated their existing models.  The timeframe the OECD used (1999-2014) captured the rise in debarment popularity.  Even given that change in conditions, two is still a low number.

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In the not so very distant past, companies mainly needed to worry about exclusion from public contracting in the United States.  However, the exclusion trend has caught on internationally.  Recently, Canada has revised their exclusion policies to require companies to certify that neither the company nor its affiliates have committed a list of criminal offenses